In its latest monthly oil market report, the International Energy Agency (IEA) stated that oil markets are in for a "bumpy ride in the months ahead".
It cited a tightening in the supply/demand balance that has resulted in oil prices rising 20 per cent since December.
The IEA talked about a heady brew of both real and anticipated supply-side risks, alongside a very evident tightening in actual market fundamentals that has been underway since mid 2010.
Direct impact
While international economic sanctions taken against Iran have had a direct impact on oil prices, the IEA said that "more prosaic ongoing tightening in the supply/demand balance" had helped to raise prices by 20 per cent since December.
Production ramped up
The disruptions to supply in places like South Sudan, Yemen, Syria and the UK North Sea come at a time when Opec has ramped up production, with Saudi Arabia pumping at a three-decade peak and Libyan output quickly recovering to prewar levels. The IEA said Opec production stood at 31.42m bpd in February, the highest level since mid-2008.
Reserve declining
That has led to a decline in Opec's spare capacity – the cushion of supply its big producers, especially Saudi Arabia, keep in reserve. The IEA said Opec spare capacity is now below 3m b/d for the first time since 2008 – a year when oil prices spiked to their all-time high of US$147 a barrel.
"There is a buffer in the system, but it's not as big as we'd like given the geopolitical uncertainties in the market," David Fyfe, head of the IEA's oil markets division, was reported by the FT as saying.
IEA forecast
Fyfe added that geopolitical tensions should ease later in the year as production increases in Angola, Nigeria, Libya and Iraq will help boost Opec's spare capacity.
The IEA kept its forecast for growth in oil demand this year unchanged at 0.8 million barrels per day (mbd) in its latest monthly oil market report.
In absolute terms, global demand for oil was forecast at 89.9 mbd, the report said.
